Voters in New York’s 23rd recently received a mailing from the National Association or Realtors bearing a photo of our congressman, Rep. Tom Reed. “Congressman TOM REED,” the pamphlet read, “PROTECTING HOME OWNERSHIP By Preserving the Federal Property Tax Deduction.”
I scratched my head as I read it. My wife and I had just deducted the local school tax and the property tax when we filed our federal income taxes a couple of weeks ago. Was someone going to take that deduction away? I hadn’t heard anything about that, and a Google search turned up nothing that referred to such a proposal.
Then a light bulb came on. This brochure must be about the Alternative Minimum Tax, though no mention is made of it. Tom Reed wants to repeal the AMT. This is one of those Reed Tea Party positions that so endears him to the rich.
The AMT injects an element of fairness into the tax code by insuring that the wealthy bear something like their fair share of the tax burden even though they have a slew of deductions. Imagine a wealthy couple. They have a very nice home with a great deal of land. For getaways, they have another such home with a terrific view. The property taxes are sky high, but hey, it’s worth it.
If this couple were to calculate their taxes in the ordinary way, they would subtract their property taxes and their other deductions from their gross income, and if their property taxes were particularly high, they could owe very little in federal income tax. In effect, by allowing such a big property tax deduction, the federal government would be subsidizing their ownership of two expensive properties. The government would be helping the rich, while those less fortunate would have to make up the difference by paying a disproportionate share of the taxes collected.
The AMT helps to prevent this by requiring taxpayers to calculate their taxes both in the ordinary way and in an alternative way, paying whichever of the two is higher. In the alternative way, the property tax deduction and certain other deductions (though not the charitable giving deduction) are disallowed, and this yields a higher adjusted gross income. From this, the taxpayer is allowed to subtract an AMT “exemption,” which for 2013 was $80,800. (This amount is adjusted each year for inflation.) The AMT is 28 per cent of whatever is left after the exemption is subtracted.
According to tax experts, taxpayers need to start worrying about having to pay the AMT when their deductions approach the AMT exemption. In New York’s 23d, couples are lucky to have an income of $80,800, let alone deductions of that amount. Rather, the AMT affects the well to do, and these are the people Reed would help by repealing the AMT.
The Tax Policy Center, jointly sponsored by the Brookings Institution and the Urban Institute, notes that in 2013, the AMT was paid by just 1 per cent of taxpayers with incomes below $100,000 and 2 per cent of those with incomes between $100,000 and $200,000. About a third of those with incomes between $200,000 and $500,000 paid the AMT.
If the AMT were abolished, the wealthy could shelter income from federal taxes by buying properties and deducting the property taxes from their income. The demand for expensive homes would increase, prices would likely rise, and costly properties would change hands more often. Profits in the real estate industry would increase. Perhaps this has something to do with why the National Association of Realtors is so fond of Rep. Reed.
The National Association of Realtors mailing shows a lack of respect for the voters in New York’s 23rd. The NAR must believe that middle class voters in the district can be fooled into voting against their own interests for the benefit of the wealthy. We’re smarter than that.